Silver prices experienced a significant drop on Monday, reversing a record rally and pulling down gold and other precious metals.
By late afternoon, spot silver prices had plummeted almost 9%, landing just above $72 per troy ounce, which is the biggest single-day decline since the onset of the coronavirus pandemic. This drop mostly erased the gains made during a lightly traded Boxing Day session.
Gold also took a hit, falling more than 4% to slightly above $4,300 per troy ounce, which follows a series of recent record highs.
Traders noted that this shift was likely due to profit-taking following the strong price increases, as well as a notice from CME on December 26 indicating that margin requirements for several metal futures contracts, including silver and gold, would rise after December 29. Higher margins increase the cost of maintaining leveraged positions, leading some traders to cut back their exposure.
Rushabh Amin, a multi-asset portfolio manager at Allspring Global Investments, mentioned that a mix of heightened margin requirements, thinner liquidity, and other variables are “impacting not only silver but other precious metals as well.”
He described the situation as “not a blow-off per se, but a very strong consolidation,” referencing a market phenomenon where sharp declines follow speculative rallies.
This downturn came in the wake of a record rally in metal prices as investors sought safe-haven assets amid worries about geopolitical tensions and the weakening of traditional currencies like the US dollar. Spot prices had reached over $80 per troy ounce on Monday morning, rising from $50 in November.
Analysts have noted signs of a speculative bubble in precious metals, as more investors flock to asset classes with limited supply. Furthermore, the drop in US interest rates has diminished the attractiveness of dollar assets, thus boosting metal prices.
Ole Hansen, head of product strategy at Saxo Bank, labeled the surge in silver prices as “parabolic,” adding that despite the increasing margins, they remain low relative to historical levels, leaving the market vulnerable.
On December 26, Elon Musk commented on the escalating silver prices via X, stating that they were “not good” due to the metal’s extensive industrial usage.
In a note dated December 29, UBS pointed out that gold’s recent rally was influenced by “seasonal liquidity” and a demand for real assets, cautioning that prices are trading at an “elevated premium” following gold’s strongest year since 1979.
